From Protected Industries to Global Competitors: A Graduation Framework for Subsidised Firms

Industrial subsidies can help India attract investment, develop domestic manufacturing, build technological capabilities and reduce strategic dependencies. However, prolonged support without measurable performance requirements risks creating permanent dependence on government assistance rather than globally competitive industries.

The Government of India should introduce a Graduation Framework for Subsidised Firms, linking the continuation and withdrawal of incentives to measurable improvements in economic performance.

The framework would have four stages: capability creation, productivity and technology upgrading, market competitiveness, and graduation to independent operation. Firms would initially receive support to establish production capacity, followed by incentives linked to productivity, workforce development, domestic value addition, research and development, exports where relevant, and commercial viability.

Each industrial incentive scheme should establish sector-specific benchmarks, baseline indicators, review periods and transparent expiry conditions. Independent evaluations should assess whether subsidies generate additional investment, sustainable employment, technological advancement and measurable economic benefits.

Underperforming firms should receive time-bound corrective plans, while persistently ineffective support should be reduced or withdrawn. Strategic industries may receive extensions where clearly justified by national security, supply-chain resilience or demonstrable market failures.

The Department of Economic Affairs could develop common evaluation principles and pilot the framework across selected industrial schemes.

The objective is to ensure that public support builds lasting industrial competitiveness rather than permanent dependence on government incentives.